Saturday, August 28, 2010

"...then weak I'd rather be......"

"FHFA Releases First Conservator’s Report..."

As usual, Calculated Risk points the way.  Full report- here.

The bad news:

"At the end of 2007, the Enterprises had $71 billion of combined
capital. From the end of 2007 through the second quarter of
2010, capital was reduced by $226 billion. Of the three business
segments (Investments and Capital Markets, Single-Family Credit
Guarantee and Multifamily) the largest contributor to capital
reduction to date has been the Single-Family Credit Guarantee
segment, accounting for $166 billion, or 73 percent, of combined
capital reduction over that period."

The not surprising analysis:

"Nontraditional and higher-risk mortgages concentrated in the
2006 and 2007 vintages account for a disproportionate share of
credit losses (charge-offs and foreclosed property expenses).
However, house price declines and prolonged economic
weakness have taken a toll on the credit performance of
conventional mortgages."

Mortgages originated in California, Florida, Arizona and Nevada
also account for a disproportionate share of credit losses. Those
states had some of the highest increases in house prices through
2006 and 2007 followed by the steepest declines to date.

The better news:

Since the establishment of the conservatorships, the credit
quality of the Enterprises’ new mortgage acquisitions has
improved substantially. Single-family mortgages acquired by
the Enterprises during conservatorship have, on average, higher
credit scores and lower loan to-value ratios, resulting in lower
early cumulative default rates.

Talking about down payments..............

Richard Green begins a conversation about "what is the proper"
down payment- here.

I like Richard Green and I follow his blog.  I do suspect we
think differently about things.

I grew up thinking that the borrowing and lending of money
was a simple business transaction.

From the early days of my real estate career, I knew that the
reason our fairly conservative, but favorite, bank wanted us
to have 20% of the deal in cash was the very high value they
placed on getting both a return on their money and the
return of their money.  I think they suspected that we would
pay closer attention to the deal if we had some "skin in the

Not much thought was given to the question, is this "socially
optimal and just"?   A lot of attention was paid to the
question, "will they pay us back?"

One would be correct in assuming that I believe that one of
the reasons our economy is in shambles is that borrowing
and lending for housing is no longer a simple business
transaction between a borrower and a lender.

Just when I was figuring out my new diet................

Thanks to KA-CHING

The Hammock Papers.................

Elevating blogging to a higher plane.  Here

"What kind of a person are you," I heard them say to me.
I'm a person with a complex plumbing of the soul,.........."

Instructions 380-387...........................

380.  Pay attention to the details.

381.  Be a self-starter.

382.  Be loyal.

383.  Understand that happiness is not based on possessions,
          power, or prestige, but on relationships with people you
          love and respect.

384.  Never give a loved one a gift that suggests they need

385.  Compliment even small improvements.

386.  Turn off the tap when brushing your teeth.

387.  Wear expensive shoes, belts, and ties, but buy them
          on sale.

From Life's Little Instruction Book, H. Jackson Brown, Jr.

Friday, August 27, 2010

A younger Carlos Santana tries his hand at "She's not there"

Drilling for oil..................this day in history........

Edwin Drake's first drilled
oil well strikes oil at 69.5

August 27, 1858.

Game changer.

From the folks at Wikipedia:

"Edwin Drake was hired by the Seneca Oil Company to investigate
suspected oil deposits in Titusville, Pennsylvania. James
Townsend, President of the Seneca Oil Company, sent Drake to
the site in the spring of 1858. The oil company chose the retired
railway man partly because he had free use of the rail. Drake
decided to drill in the manner of salt well drillers. He purchased a
steam engine in Erie, Pennsylvania, to power the drill. The well
was dug on an island on the Oil Creek. It took some time for the
drillers to get through the layers of gravel. At 16 feet (5 m) the
sides of the hole began to collapse. Those helping him began to
despair. But not Drake. It was at this point that he devised the
idea of a drive pipe. This cast iron pipe consisted of 10-foot-
long (3.0 m) joints. The pipe was driven down into the ground.
At 32 feet (10 m) they struck bedrock. The drilling tools were
now lowered through thepipe and steam was used to drill
through the bedrock. The going, however, was slow. Progress
was made at the rate of just three feet (1 m) per day. After
initial difficulty locating the necessary parts to build the well,
which resulted in his well being nicknamed "Drake's Folly,"
Drake proved successful.

Meanwhile crowds of people began to gather to jeer at the
apparently unproductive operation. Drake was also running out
of money. Amazingly, the Seneca Oil Company had abandoned
their man, and Drake had to rely on friends to back the
enterprise. On August 27 Drake had persevered and his drill bit
had reached a total depth of 69.5 feet (21 m). At that point the
bit hit a crevice. The men packed up for the day. The next
morning Drake’s driller, Billy Smith, looked into the hole in
preparation for another day’s work. He was surprised and
delighted to see crude oil rising up. Drake was summoned
and the oil was brought to the surface with a hand pitcher
pump. The oil was collected in a bath tub."

These belong with yesterday's 'Majestic" post.............

here and here and here

"Traditional intermediaries" beware.............

In case you weren't aware, your world is changing.

Kevin Kelly is thinking out loud- here

Leadership, Gipper style.............

Tiger Hawk offers some advice:

"One thing a president can do -- which Ronald Reagan loved
to do -- is to use the bully pulpit to talk up the entrepreneurial
spirit of American business. Reagan understood that economic
growth and the associated (and politically important) job growth
would flow largely from non-S&P 500 companies."
"That raises the question of why President Obama has not used
his bully pulpit to deliver rousing speeches encouraging American
 ingenuity and business savvy. There are plenty of people who
voted for him who are in positions of leadership in large and
small businesses, and many would be very receptive to a bit of

Patrick is taking notes.......................


Thursday, August 26, 2010

Zombies............She's not there

"Housing in Ten Words"...............

James Kwak, blogging at The Baseline Scenario, borrows a
headline from the New York Times:

"Housing Fades as a Means to Build Wealth, Analysts Say.”

Kwak provides some evidence that, over the years, housing
hasn't been the fabulous investment that we have been led to
believe.  But then he concludes his essay:

"When 'analysts say' one thing, they are usually wrong.
Remember back in 1999-2000, when most analysts were
saying that stocks were the best investment for everyone, all
the time? Generally the best time to buy an asset class is when
conventional wisdom has shifted against it. So while I still think
housing is overpriced–and we should slowly remove the props
on that price, like the mortgage interest tax deduction–maybe in
the long term it’s not such a bad idea after all."

It feels like I keep repeating myself here.  At the risk of doing
it again, housing is supposed to be primarily shelter- a place
to raise a family, a place to shelve all your books, a safe haven,
a port in the storm, a garden to dig in, a basketball hoop in
the driveway, a place where you can get to know the neighbors,
a way to become embedded in a community. 

Secondarily, over the long haul, it can become a repository for
equity, either from appreciation or mortgage reduction. 

Housing hasn't failed us.  It still performs it's primary function

We have picked up some unreasonable expectations over the

We got used to the notion that housing values always go up. 
They don't. 

We fell in love with the notion that housing was primarily
an financial investment vehicle.  It isn't.

We got really confused about the difference between investing
(think long term holds- ten years or more) and speculating
(think short term holds- five years or less).

Unreasonable expectations usually lead to unhappy outcomes.

Looking for a quick fix to this mess is another unreasonable

The good news is that housing still performs its primary
function extremely well.


here and here and here and here and here

While it may be well camouflaged......

I suspect this is actually very good news- here.  

I started looking at credit card statistics and got mostly
confused.  Will try to sort it all out and report later.

This wasn't on my to-do list.........

maybe it's not too late to add

Wednesday, August 25, 2010

Annie Haslam and Renaissance...........

Wanted to post Scheherazade but settled for this......

Here is a different way of looking at things....................

"Indeed, the problem in the housing market seems to be that
homeowners are not rushing to sell." -  so says Megan McArdle.

True on at least two levels: 

Most homeowners are never sellers. They buy a house to make a
home for their family.  They raise kids, they become part of a
community, they stay put for a long time.  If they are smart, they
pay their mortgage down, or off, and do not refinance to fritter
their equity away buying "stuff" to support a consumer driven
economy.  I do not know the statistics, but my guess is that this
is the path of the majority of home owners in the country today.
I suspect these folks are watching all the turmoil in the market,
but are not truly impacted by it.

Felix Salmon notes that the annualized number of home sales
has dropped to a level not seen since Bill Clinton was in his first
term as President.  Salmon says, "The news also means that there’s
a big gap between buyers and sellers: the market isn’t clearing.
Sellers are convinced that their homes are worth lots of money,
or will rise in price if they just hold out a bit longer; buyers are
happily renting, waiting for prices to come down. And
entrepreneurial types, whom one would expect to arbitrage
the two by buying houses with super-cheap mortgages and
renting them out at a profit, don’t seem to have found those
opportunities yet."

Entrepreneurial types- that's how we like to think of ourselves-
aren't buying because of that old risk/reward thing.  With all
the unsettledness in the market place, it is still too hard to tell
who the winner will be in the tug-of -war between inflation
and deflation.  We counsel patience.

This blogger has blogged before about the risk of viewing
the 2000-2006 market as the normal course of events.  It
was, in our opinion,  just as much an aberration as what we are
going through now.  We could do worse than have the "new
normal" to be like 1995.

Does this mean I can't grow up to be the President?..........

A final little bit from Steven Pressfield's The War of Art:

                         The Authentic Self

"Do you have kids?

     Then you know that not one of them popped out as tabula
rasa, a blank slate.  Each came into this world with a distinct
and unique personality, an identity so set that you can fling
stardust and great balls of fire at it and not morph it by one
micro-dot.  Each kid was who he was,  Even identical twins,
constituted of the exact same genetic material, were radically
different from Day One and always would be.

     Personally I'm with Wordsworth:

               Our birth is but a sleep and a forgetting:
               The soul that rises with us, our life's star,
               Hath had elsewhere its setting,
               And cometh from afar:
               Not in entire forgetfulness,
               And not in utter nakedness,
               But trailing clouds of glory do we come,
               From God who is our home.

     In other words, none of us are born as passive generic
blobs waiting for the world to stamp its imprint on us.  Instead
we show up possessing already a highly refined and
individuated soul.

     Another way of thinking of it is this:  We're not born with
unlimited choices.

     We can't be anything we want to be.

     We come into this world with a specific, personal destiny.
We have a job to do, a calling to enact, a self to become.  We
are who we are from the cradle, and we're stuck with it.

     Our job in this lifetime is not to shape ourselves into some
ideal we imagine we ought to be, but to find out who we
already are and become it.

     If we were born to paint, it's our job to become a painter.

     If we were born to raise and nurture children, it is our job
to become a mother.

     If we were born to overthrow the order of ignorance and
injustice of the world, it's our job to realize it and get down
to business."

Do yourself a favor, read The War of Art.

Happy 80th Birthday to Sean Connery.............

Going "green" with Dilbert.................

"You're saving the Earth, damn it. No one said it would be easy"

Tuesday, August 24, 2010

Quicksilver Messanger Service.....Fresh Air

"I'm not sure that abetting fictiticious accounting ought to be a principle guiding force in our public policy in this area"........

Although, truthful accounting might mean the end of "pretend
and extend".  Not sure I'm ready for that yet.  Seems I'm just
as conflicted as everyone else.

If you like a guy with an attitude, you're sure to like Dylan.

Thanks to Guzzo for pointing the way.

"Let things be as they are"............

"Dwelling inwardly for extended periods, we come to know
something of the poverty of always looking outside ourselves
for happiness, understanding, and wisdom.  It's not that
God, the environment, and other people cannot help us to be
happy or find satisfaction.  It's just that our happiness,
satisfaction, and our understanding, even of God, will be no
deeper than our capacity to know ourselves inwardly, to
encounter the outer world from the deep comfort that
comes from being at home in one's own skin, from an
intimate familiarity with the ways of one's own mind and body."


"The next time you feel a sense of dissatisfaction, of something
being missing or not quite right, turn inward just as an
experiment.  See if you can capture the energy of that very
moment.  Instead of picking up a magazine or going to the
movies, calling a friend or looking for something to eat or
acting up in one way of another, make a place for yourself.
Sit down and enter into your breathing, if only for a few
minutes.  Don't look for anything- neither flowers nor light
nor a beautiful view.  Don't extol the virtues of anything or
condemn the inadequacy of anything.  Don't even think to
yourself, 'I am going inward now.'  Just sit.  Reside at the
center of the world.  Let things be as they are."

-excerpts from Wherever You Go, There You Are by
Jon Kabat-Zinn

Using the years 2003-2006 as your frame of reference....

.....will probably lead to a faulty conclusion, if the subject is real
estate investing.  Story, here.  Excerpt here:

"The costs of owning a home can substantially outweigh the
benefits because of issues such minimal home equity retention
and an owners desire to "flip" a home on the market quickly,
researchers Wenli Li and Fang Yang said in their report
American Dream or American Obsession? The Economic
Benefits and Costs of Homeownership, published Friday by
the Federal Reserve Bank of Philadelphia."

I will confess to not having read their full report, but.........
someone is very confused.

Granted "home ownership" can  mean different things to
different people. But "flipping" has absolutely nothing to
do with home ownership or investment and everything
to do with real estate speculation.

The story continues to confuse with this excerpt:

"But there's another element added to the mix. The
Philadelphia Fed's report stated that loan applications for
non-owner-occupied homes — second homes, investment
properties, etc. — have increased over the past decade,
reaching its peak in 2006 at 13% of all loan applications."

If you go to the story, you will note on the accompanying
chart that loan applications spiked from 2003 to 2006.
These were not investors buying houses for the long run,
these were speculators trying to make a quick profit from
"flipping" during a super heated market.

The story continues:

"The report also said that non-owner-occupied houses rarely
yield consumption value to the owner and cause many of the
properties to foreclose."

"This makes the purchase of investment properties more of a
short- to medium-term investment strategy, similar to buying
stocks," said the report. "In other words, owners are more
likely to be constrained or have more incentives to walk away
from their investment properties in times of difficulty… even
for second homes, foreclosure rates have also exceeded those
for primary homes in recent months."

Speculators got caught by the bursting bubble that they helped
create. As this blog has discussed before, speculating is not
investing, it is gambling.  I would counsel caution in trying to
take any lesson away from our recent real estate bubble other
than mass hysteria often causes otherwise reasonable people to
make judgment errors.

Many experienced real estate investors were sellers, not
buyers, in the years 2003-2006.  This business is difficult
enough without adding the burden of overpaying for an

21st Century Enlightenment..........

Asking, "Is this right?" and "What is progress?"

Suggesting we foster our empathetic capacity and "have a
relationship to our reactions rather than be captive of them."

Noting that "the idea that progress should be designed to
increase human happiness has turned into the assumption
that pursuing progress is the same as improving human
well being."

Another white-board video here.

Monday, August 23, 2010

Jimmy Durante presents the Grass Roots?

A Poem for Monday........

Before I return Life After Mississippi to the Library, it seems
right to post a second poem by James Autry.   Here goes, ready?

Life In America

There's a line I want to use,
in a poem I want to write,
Now don't groan or roll your eyes.
Give me a break.
I mean, hey, give it a chance
to grow on you,
It's a line I thought of,
watching some guys after a golf game
drinking in the club house
and slapping cards on the table
and checking their watches and saying
like, you know, "oh hell,
about time to go home or my old lady'll
give me a load of shit."
This line is about those guys
plus a lot of other people,
let me tell you,
people in loud dance places,
standing around the floor,
checking out the action,
if you know what I mean.
And people in bowling alleys,
yelling at the pins and each other.
This line,
and believe me, I wrote it myself,
I swear I never heard it before,
this line is about all those people I see
and not just those,
at restaurants and ball games
and even at church.
It's a line about how they act
and in a way it's a line about America.
But hey, I don't want to get too heavy,
you know?
I just want to say this one little line
and let you take it from there,
Hey look, seriously, the line is
(are you ready for this?)
"living lives of boisterous desperation."
Lives of boisterous desperation.
How about that?
Not quiet desperation, like the other guy wrote
about another time and another place,
but boisterous desperation.
Get it?
Get it?
Sure you do.

Again, thanks to E. for pointing the way.

It's a beautiful day....................Part 1

Volume up.....................

It's a beautiful day....Part (U) 2

It's a beautiful day.........Parts 3, 4, 5 and 6

here and here  and here and here

"All the books that we will ever need to make us.......... rich, as healthy, as happy, as powerful, as sophisticated
and as successful as we want to be have already been written." 

     So says teacher/mentor/author Jim Rohn in his little gem,
The Five Major Pieces to the Life PuzzleHe asks:

     "All of the insights that we might ever need have already
been captured by others in books.  The important question
is this:  In the last ninety days, with this treasure of information
that could change our lives, our fortunes, our relationships,
our health, our children and our careers for the better, how
many books have we read?"

Sunday, August 22, 2010

"I've hungered for your touch....."

Making the case for a "flat tax".........

Essay here about the end of the "Bush Tax Cuts" and what will
actually happen in the real world.

Excerpts here:

"Whole swaths of people who never needed to worry about
the estate tax will be searching for financial planners in order
lessen this tax hit."

"Investors may be more likely to cash out this year or consider
continuing their investment via 1031 tax exchange."

"More likely than not more money and attention will be spent
on tax planning in 2011 than ever before. Lease accounting,
estate tax considerations, and capital gains tax rates rising will
cause most developers and investors to put their tax attorney on
speed dial in front of their lender contacts."

If I have learned anything about people in 28 years of working in
investment real estate, it is that they will go to great lengths to
avoid paying taxes that feel punitive.  If the tax is too high, the
taxable event will not happen.  No taxable event, no tax

At some point  Congress needs to decide if they want to use
the Tax Code to reward some and punish others or to raise
revenue.  Given human nature and the brainpower employed
in the pursuit of legal means of avoiding of taxes, I have to
believe that a "flat tax" will raise more revenue.

Given human nature, there is probably about  zero chance
that we will ever see one.  Too bad.  We could use the
productivity boost a very simple tax system would provide.

Checking in with Hugh...........

Sunday's Verse

24.   And hearing this, the ten became indignant with the two

25.   But Jesus called them to Himself, and said, "You know
that the rulers of the Gentiles lord it over them, and their great
men exercise authority over them.

26.   "It is not so among you, but whoever wishes to become
great among you shall be your servant,

27.   and whoever wishes to be first among you shall be your

28.   just as the Son of Man did not come to be served, but
to serve, and to give His life a ransom for many."

29.   And as they were going out from Jericho, a great
multitude followed Him.

30.   And behold, two blind men sitting by the road, hearing
that Jesus was passing by, cried out, saying "Lord have mercy
on us, Son of David!"

31.   And the multitude sternly told them to be quiet; but they
cried out all the more, saying, "Lord, have mercy on us, Son
of David!"

32.   And Jesus stopped and called them, and said, "What
do you want Me to do for you?"

33.  They said to Him, "Lord, we want our eyes to be opened."

34.   And moved with compassion, Jesus touched their eyes;
immediately they regained their sight and followed him.

Mathew 20: 24-34
The Open Bible